ISA Tax Advantages To Be Extended To Deceased Estates

The Government announced in its Autumn Statement 2015 plans to legislate to allow the ISA savings of a deceased person to continue to benefit from tax advantages during the administration of their estate. Draft legislation to effect this change has now been published for consultation.

HMRC has published draft regulations which will allow Individual Savings Accounts (ISAs) to retain their tax-advantaged status during the administration of a deceased ISA saver’s estate.

The draft legislation provides that investments retained in an ISA after the death of the account holder will be deemed to be ‘administration-period investments’ held in a ‘continuing deceased’s account’ until the earlier of the administration of the estate being finalised and three years after the account holder’s death. This means that personal representatives and beneficiaries or legatees should not face income tax or capital gains tax on the investments during this period. The draft legislation confirms that no new subscriptions can be made to a continuing deceased’s account after the death of the account holder, and the account cannot be transferred between ISA providers other than in specified circumstances.

To take account of the change, the regulations also allow for the additional permitted subscription available to surviving spouses and civil partners of deceased savers to be the higher of the value of investments held in a deceased’s account on the deceased’s death and the date on which the account ceases to be a continuing deceased’s account.

The legislation also amends the capital gains tax rules to provide that a legatee will be treated as having acquired an administration-period investment at the market value at the date it is transferred to them.

The draft regulations have been published together with a draft explanatory memorandum for a period of technical consultation which closes on 7 April 2017.

The changes will reduce the tax liability and simplify the transfer of funds for those administering the person’s estate.